Like the other ancillary services in the dealership and auto auction world, vehicle inspections — along with condition reports, also discussed in this article — are among the blocking-and-tackling, meat-and-potatoes fundamentals that are vital to used-car ecosystem churning along.
And it’s complex, says Eric Widmer of inspection company Alliance Inspection Management, better known as AiM.
“It’s a difficult business; it’s a hard business. But to me, it’s a very valuable business,” Widmer, who is AiM’s senior vice president of sales and marketing, said by phone in September.
“The more you can know about your assets the farther upstream, the better decisions you can make on what to do with them. That to me, is kind of the foundation of collecting all this data,” he said. “The better you know about this stuff, the better you know how your portfolio handles, the better you know about what you’re thinking of purchasing, the better decision you can make.
“So, getting that data to me is like the critical first step for the process of what to do with these cars or these assets or this decision,” Widmer said. “It’s not a glamorous and sexy business, but to me it’s one of the foundational pieces to remarketing and buying and selling used cars.”
Impact of online buying & selling
The foundation of what companies like AiM do, as Widmer puts it, is to gather original data in real time.
The use cases of that data are often “two-fold,” he said.
“Our inspections in a lot of cases are two-fold: One is to assess excessive wear and use for a lease return. So, if a lessee has abused a car or there’s damage on it that they’ve just chosen not to repair, we have to protect our customers on that,” he said. “But secondly is to be able to remarket the car virtually and take advantage of all the used-car marketplaces that are out there.”
Over at inspection provider AutoVIN, which is part of KAR Global, Richard Carpentier said that prior to the online channels’ emergence in the late 1990s, inspections were “100% catered to the end-of-lease process.”
That since has changed.
“With the arrival of the online channels, our services became dual purposes,” Carpentier said in an October phone interview.
In addition to working with captives and other lending institutions to conduct end-of-lease inspections to monitor for excess wear-and-tear or mileage, the information that inspection companies gather is available to the online marketplaces.
“That allows our partners to be able to sell their cars online,” said Carpentier, who is chief operating officer and senior vice president of operations at AutoVIN. “So, the same type of data sets that we use is used for two purposes.”
The advent of the self-inspect app brings a third use, Carpentier said, which gives the ability to communicate more frequently with the lessee throughout the term of the lease.
As Widmer pointed out, “There’s a lot of energy right now around a self-inspect app, meaning allowing a lessee or a consumer to inspect their car themselves to give them a general idea of the condition of the car and what they might owe.”
Carpentier said, “It is of my opinion that it will become a great tool to facilitate selling cars online earlier than at the end of the lease, if there’s equity built into the vehicle and somebody wants to move the metal sooner rather than later.”
Today it’s a little unclear what a vehicle’s condition might be mid-lease, Carpentier said, but with additional information provided through a self-inspection from the lessee coupled with a third-party inspection, the lessor “would probably be able to make a sound decision on the (leased vehicle) through the lifecycle of the vehicle, as well.”
The online channels certainly have opened up opportunities for companies like Black Widow, which provide imaging services used in online listings and condition reports.
The origins of the company go back 20 years, as it worked out of St. Louis as a third-party vendor detailing about 4,000 cars per month for local dealers, said executive vice president Tom Freiert.
“In doing that, we started taking pictures for them. We built out photo studios with turntables about 12 years ago when digital really started becoming very important for dealers,” Freiert said in an interview at the National Auto Auction Association’s annual convention in October, where Black Widow was exhibiting.
“We tried to sell studios to them, and we realized it wasn’t a high-volume, efficient solution and it took up too much real estate,” he said. “So, we went back to the drawing board and that’s how we came up with Black Widow. It suspends from the ceiling, takes up no dedicated real estate.”
The imaging device is designed to be a simple as possible, and require “little to no training.” The device has eight legs (like a spider, hence the name) and hangs from the ceiling.
“There’s a camera suspended from every leg. The car pulls under it; it automatically scans the VIN number. So, you stop for about three seconds. All the pictures are automatically captured and loaded directly to the AMS management platforms,” Freiert said. “So, we’re able to go into auctions and not eliminate, but repurpose, multiple dedicated photographers. We give them a better, more efficient solution.”
At the time of the interview, Black Widow was currently being used by 50 dealerships, Freiert said. The retail side had been the focus, since that’s where the company had its start, but they have put more emphasis on the wholesale side these days and were aiming to line up more auctions to utilize the service.
“We just saw that this is really a commercial imaging solution. Dealers, they have options. They can try the studio, they can try the mobile apps, and it may work for them,” he said, adding that these dealerships may also have staff dedicated to those tasks. “They’ve got those options, whereas we looked at the auctions, and there’s just really no commercial solution for the high-volume that they do.
“So that’s where we really saw it fitting: in the auctions. And we kind of made the pivot and really focused on the wholesale space.”
Freiert sees the imaging solution as a “revenue stream” for auctions, where they can provide it as a service to their own dealer customers.
“They’re actually able to create a revenue stream from it. Part of our technology is backgrounds. So, we capture the photo and the car gets cut out and put on the background to make it look like it’s in a studio. We call it the virtual photo studio,” he said.
“What we do for the auctions, I think it’s really important for the dealers, when they’re looking at the auction wholesale car, they want to see the car there in the lane. It creates a transparency (that) this is the actual car at the auction,” Freiert said. “So, we use that original image. Now, when the car’s sold to the dealer, the auction now has the ability to use that backgrounded photo, put the dealer’s overlay and logo on it and sell those photos to the dealer.”
Different damages, different impacts
As the saying goes, a picture says a thousand words. But what also provided a more complete story is the context.
In the world of inspections and condition reports, often the goal is to provide context around things like vehicle damage.
A key question: How do certain damages specifically affect a car’s value? Well, the specific scenario that caused the damage matters.
Widmer at AiM gives this example:
“If you have a 7-inch dent on your door, what’s the impact to value to that particular car? And you have to dig even a little bit deeper,” he said.
“You can think about a 7-inch dent (where) your kid kicked a soccer ball into the door. And then you can think about a 7-inch dent where your kid took a hammer to the door,” Widmer said. “There are two very different value propositions for those two damage types, even though they’re both 7-inch dents.
“To me, one of the keys will be, if anyone could ever figure out exactly how specific damages impact the value of the car, that would be super important to both buyers and sellers.”
Though for sure not all involve soccer balls or hammers, many cars on the road today have some sort of accident(s) in their history.
According to a whitepaper from Experian (of which AutoCheck is a part) over two-fifths of the vehicle population have been in an accident.
Of course, not all accidents are serious or cause severe damage.
Frank Lynch, who is chief executive officer of the True360 live inspection software platform, said via email that among vehicles with histories of accidents that his company inspects, about 70% receive “a very high score and have been certified to have only sustained minor cosmetic refinishing.”
Lynch and True360 chief operating officer Michael Amalfi sat down with Auto Remarketing at the NAAA Convention to discuss some of these trends and the services provided by their company.
Essentially, a True360 report provides context as to what the condition of the vehicle is now, even if the car has had an accident in its history.
In essence, their services are complementary to the vehicle history reports provided by companies like CARFAX and AutoCheck. So, for example, say an online shopper finds a car he or she wants to purchase and runs a vehicle history report, Lynch said, and within that report is a True360 report.
That report would provide the current condition of the vehicle to complement the vehicle history information provided by VHR provider.
“We give it a complete third-party, paint and structural analysis,” Lynch said. “We document, ‘what is the condition right this second? What is it right now?’”
Their report would also identify the previous damage.
And again, not all accidents are the same. Lynch said the large dealer groups that use True360 will employ it to provide context to vehicles that have accident histories and gauge “to what degree” the damage might be.
That said, Lynch would also note that True360’s business “is not just totally reliant on the damage-reported vehicles,” and that it is shifting into also being a way to provide greater transparency on cars.
What’s more, they also provide dealer training on utilizing True360. That training is headed up by Amalfi.
“We train the BDC on when they answer the phone and the customer has a question about anything negative in the history report, how to bring them right to the True360 report,” Amalfi said. “We walk them through the cosmetic score — everything’s scored out of 100.”
They also train the dealers on structural components.
“So, you’d be surprised the amount of people that actually work in a dealership that can’t tell you what the structural components of a vehicle are. So, we train them on that. An A pillar, a B pillar, what our technicians look for,” Amalfi said. “(We) tell them about the training that our technicians go through to be certified to upload the CARFAX and AutoCheck (reports). Just a well-rounded training on how to help them use this tool to sell the vehicle.”
Condition reports drive online buyer confidence
Moving back to the wholesale side of the market, as online sales become more prevalent, providing an accurate, objective reading of a vehicle’s condition is crucial to establishing buyer confidence. That’s something that Manheim has taken to heart within its operations.
“We know that in order to have that confidence to buy online, we have to get to a much more objective condition report, which is something we’re heavily invested in and will continue to invest in for the years to come,” Manheim president Grace Huang said in an August phone interview.
Around three years ago, Manheim made a “huge push” for its dealer sellers to utilize condition reports, as those sellers often missed on out online sales when they did not include CRs with vehicles, Huang said.
“All of our general managers, all of our sales team has been involved to continue that practice of really talking to each dealer about their inventory and why it makes sense for them. We’ll ask them to try it and see, and most of the time, they see pretty immediate results just from the Simulcast numbers. They’ll see that number jump,” Huang said.
“We all know in the auction business, the more people you have, whether on Simulcast or in the lane bidding, it’s only a good thing for the seller.”